By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net 

Taxpayer subsidies to loss-making government enterprises are forecast to increase by $75m over the upcoming four fiscal years to hit $525.6m in 2028-2029, it has been revealed.

The Government’s just-released Fiscal Strategy Report 2025 again identifies the likes of the Water & Sewerage Corporation, Bahamasair and the Broadcasting Corporation of The Bahamas (BCB) as a major risk and threat to its forecast 2025-2026 surplus and other fiscal targets as it pledges to continue the “rationalisation” initiative for state-owned enterprises (SOEs).

“State-owned enterprise (SOE) reform remains a key Budget priority with targeted measures aimed at reducing fiscal transfers and managing contingent liabilities. The newly implemented guaranteed policy framework, ‘Bahamas Policy Framework for Guarantees’, will be fully operationalised, including the application of eligibility criteria, credit risk assessments and a standardized guarantee fee structure,” the report said.

“In addition, SOEs will be required to submit medium-term business plans aligned with fiscal objectives and face tighter controls on hiring, salary increases and unfunded capital spending. The continued training of SOE directors will improve governance and compliance.

“Sector-specific reforms will continue in the water and healthcare sectors, while major restructuring in the energy sector is projected to reduce direct subventions over the medium term. These reforms are essential to reducing fiscal risks, enhancing service delivery and ensuring the sustainability of public finances.”

The Fiscal Strategy Report pledged that the Government is targeting a reduction in its contingent liabilities, representing borrowing by state-owned enterprises that it has guaranteed on their behalf. While such guarantees are estimated to total $297.2m at end-June 2025, they are forecast to increase by more than $160m to $458.8m by the close of the 2025-2026 fiscal year before declining again.

“Government guarantees, primarily extended to state-owned enterprises (SOEs), represent a significant source of contingent fiscal risk. If the financial or operational performance of guaranteed entities deteriorates, the Government may be required to assume their debt obligations, leading to unplanned expenditures, higher debt and reduced fiscal space,” the Fiscal Strategy Report warned.

“In the 2025 Fiscal Risk Heat Map, government guarantees are assessed as high impact and of possible likelihood, underscoring their critical importance in fiscal risk management. As of end-June 2025, the value of outstanding government guaranteed liabilities was estimated at $297.2m.

“In the upcoming Budget, fiscal year 2025-2026, total guarantees are estimated at a value of $458.8m. Over the medium term, the balance is expected to decline to $140.1m by fiscal year 2028-2029, barring the issuance of new guarantees. To proactively manage the risks associated with government guarantees, the Government has implemented the following key measures.”

These include developing “eligibility criteria” for SOE’s seeking government, or taxpayer, guarantees; limits on the amount of guarantees that can be issued annually; credit risk assessments; and the payment of guarantee “fees” to partially reduce the Government’s exposure.

Meanwhile the Bahamas Institute of Chartered Accountants (BICA, in its analysis of the 2025-2026 Budget, described the prospect of a “balanced Budget” or surplus as a “notable milestone” for the country but voiced concern over the “lack of prior consultation” on the proposed VAT and Business Licence reforms.

“While supportive of reform, we emphasise the value of stakeholder input, particularly through our existing technical working groups with the Ministry of Finance and the Department of Inland Revenue. While policy reform is necessary, structured engagement through existing technical working groups would improve reform design and compliance outcomes,” BICA added.

Taking a deeper dive into the Budget measures, BICA suggested that the VAT rate cut to 5 percent for medicines, baby diapers and feminine products is unlikely to offset cost of living pressures in other areas.

“The Government’s revenue performance, underpinned by a 12.2 percent increase led by VAT, trade taxes and real property collections, reflects administrative improvements and economic recovery. However, reliance on consumption-based taxes continues to expose the revenue base to external shocks and economic fluctuations,” the Association warned.

“Consideration should be given to gradually diversifying revenue sources to improve resilience and long-term planning. While capital spending allocations prioritise critical sectors such as education, healthcare, energy and digitisation, the success of these investments will depend on improved execution frameworks.

“Delays and inefficiencies in project delivery remain persistent challenges. The establishment of a centralised Public Investment Management Unit (PIMU) could support more consistent project appraisal, oversight and accountability,” BICA added.

“On the social front, targeted VAT reductions on baby products, hygiene items and medicines offer modest relief. However, they are unlikely to materially offset broader cost of living pressures stemming from energy, food, transportation and housing expenses.

“These concerns are particularly pronounced in the Family Islands, where inflationary impacts and access barriers are more acute. A more robust monitoring mechanism, such as a national Cost of Living Index, could guide more targeted interventions and adaptive social policy responses.”

Casting a wider net, BICA then said: “The introduction of sovereign blue carbon securities and a $124m debt-for-nature swap represent commendable steps in climate finance. These instruments position The Bahamas among regional leaders in environmental innovation.

“To strengthen these efforts, fiscal planning should incorporate a formal Climate Fiscal Risk Assessment to evaluate the potential financial impact of environmental shocks on public resources. With rising hurricane frequency and sea level threats, it is now imperative that we act.

“Regarding the National Investment Fund, its inter-generational equity goals are well-conceived, but its governance structure requires further development. Legislative clarity, financial disclosure mandates and independent oversight will be essential to ensure public confidence and effective operation,” it added.

“Its continued legitimacy hinges on governance safeguards, legislative clarity and transparent reporting. BICA recommends enshrining the fund’s framework in law, mandating audited disclosures and incorporating professional and civic oversight to build trust.”